The newly minted CEO at Luna Innovations is still enjoying his honeymoon period, as the company’s stock price has more than doubled since Scott Graeff took over about a year ago.
It marks the strongest sustained growth since a lawsuit nearly destroyed the business in 2009, but Luna now has growing revenues and more cash in the bank than ever before and is showing consistent quarterly profits for the first time in years.
Graeff said he has spent his time in the corner office focusing on a side of the business that didn’t receive as much attention under previous leadership: corporate culture
"Everything that I’m doing, in essence, I’m looking at and saying, ‘Let’s turn it upside down and shake it,’ ” Graeff said. “Let’s see what comes out.”
Graef admits most people living around the company’s Roanoke headquarters don’t know that Luna specializes in using fiber-optics to build test and measurement tools. Investors haven’t heard a compelling story that makes them want to buy in, and even internally the mission hasn’t always been understood.
“If we look around the table and the employees don’t have a clear vision of what Luna is doing, how in the world could the local community know and how could the investors know?” Graeff said.
Graeff’s predecessor, former CEO My Chung, took over in 2011 as a seasoned executive hired to make hard decisions and find a solid financial footing for a 21-year-old company that was in turmoil.
He was picking up the pieces after Luna began working with California-based Hansen Medical Inc. in 2006, the same year Luna went public. The deal turned sour when Hansen accused Luna of sharing its trade secrets with a competitor. A jury awarded Hansen a $36.3 million verdict in 2009. Soon after, Luna declared bankruptcy and was in jeopardy of being delisted from the Nasdaq Stock Market.
The company eventually reached a settlement with Hansen, preserved its stock exchange listing and emerged from bankruptcy with a plan for major changes.
Chung tried to create a company focused on fiber-optic technology, instead of a little bit of everything. He abandoned projects, sold divisions and scrapped the old logo. His biggest win was the $16 million acquisition of Michigan-based Advanced Photonix Inc. in 2015, which Luna largely sold off in chunks within three years for more than $50 million.
By the time Chung left, Luna had carved out a niche in the use of fiber-optics as a test and measurement tool in a variety of industries, from checking on the labyrinths of fiber running into Google data centers to finding defects in Boeing aircraft.
Carilion Clinic has been one of Luna’s largest investors since the early 2000s, holding just less than 15 percent of the company’s stock as of April, according to filings with the U.S. Securities and Exchange Commission.
Rob Vaughan, Carilion’s treasurer and senior vice president of finance, said his office took the long view with its investment from the beginning. The bankruptcy wasn’t tied to issues in the underlying business or technology, he said, but rather it was something the company could work through.
“We were always encouraged that they would continue to make progress, and they have,” Vaughan said. “Really, at the heart of it [the turnaround], starting to become profitable is the main grabber. We’re starting to see the results of the strategy they’ve pursued over the past few years pay off.”
Luna’s stock was still trading around $1.50, below 2010 levels, when Chung retired last year, but the company was selling products and generating profits, and the stage was set for the stock rise happening now.
That’s when Graeff was named CEO after more than 15 years with the company, at various times holding the titles of chief financial officer, chief operating officer and chief strategy officer.
He took over with a plan to start focusing on telling the company’s story, improving team morale and communication around the office.
The price briefly hit an eight-year high above $4 per share earlier this month, but has since settled back down closer to $3.50.
“Where it [the stock price] was, I knew was tremendously undervalued. I believed we were not telling the story properly,” Graeff said. “Something wasn’t clicking. I couldn’t put my finger on what it was.”
One of Graeff’s first hires was human resources director Marnie Young. She put out anonymous employee surveys and began making changes to the office dynamic in response.
At one of Young’s first leadership team meetings, she said the group went around the room with everyone describing what kind of company Luna is.
“It was a bit of a mess because everybody had a different description,” Young said. “If you understand how your job impacts the drivers and the results of the company, I think you feel more a sense of ownership and you’re really bought in to that vision and mission.”
Luna is a relatively small publicly traded company with about 200 employees, but Graeff said he always felt it could think bigger when investing in staff. Happy employees are easier to recruit, stay at the office longer, work harder and are less prone to costly turnover.
“When I walked in, it [Luna’s Blacksburg location] kind of felt like manufacturing and not technology — and we definitely are a technology company,” Young said. “So we are working on improving the look and feel of that space.”
Graeff said he makes an effort to be visible in the company’s various offices, including the mostly administrative headquarters in Roanoke. There’s more communication with management and he wants to make employees feel like their concerns are heard.
The company is now looking to install ping-pong tables at the Blacksburg location, which is Luna’s largest facility focused on technology development. They’re getting Starbucks coffee machines and daily fresh fruit giveaways. Young is planning company picnics and holiday parties. She’s launched an internal blog, is working to automate monotonous tasks for workers and is setting up more collaborative meeting spaces.
Luna moved its annual shareholders meeting this year to the Hotel Roanoke and Conference Center, where food was served and Roanoke bigwigs were invited. Instead of three attendees from the public in years past, Graeff said the meeting drew 50.
“I think people are starting to get the clear, concise story we’re trying to tell,” he added.
Luna reported its most recent quarterly results this month, showing a net profit of $1.2 million through the first six months of 2018, compared to a $1.6 million loss at this time last year. Annual revenue in 2017 hit $46.2 million, up from $18.3 million in 2013.
Stocks of smaller companies such as Luna tend to be more volatile, but Carilion’s Vaughan said he thinks the price could stabilize as long as the company keeps showing profits.
“The employees feel like you’re investing in them,” Graeff said. “That cost to me is next to nothing. But what I get in return is tremendous. … You’ll see that in the financials. It just naturally flows through.”
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